Job Stats Fail to Uncover Underemployed College Grads

Federal Reserve policymakers are missing important information as they assess the health of the labor market: data that might answer whether those employed full-time are overqualified for their jobs or would like to work more hours. As a result, the slack in the labor market that Fed officials on Oct. 29 said is “gradually diminishing” is probably still greater than estimated.

The information gap about slack—the number of workers who aren’t realizing their full potential in the labor market—means the central bank may have more difficulty gauging the right moment to raise rates. “Because it’s difficult to measure underutilization, there’s still a lot of uncertainty as to how much slack remains,” says Michelle Meyer, a Bank of America economist, “which means there’s uncertainty as to the appropriate stance of monetary policy.” If the Federal Reserve raises borrowing costs too soon, it risks slowing growth before it has wrung all the labor market slack out of the system. Already the Fed has ended its program of quantitative easing.